Applying Ratio Analysis Appropriate to the Probiotec Ltd to Measure and Comment upon the Company’s Liquidity

Hamidreza Mahboobinejad

Corresponding author:

hrm216[at]uowmail[dot]edu[dot]au

Abstract:

This paper firstly introduces the Probiotec Ltd as a case study to analyze the financial situation and performance of the company through ratio analysis. Following this, using literature, it will be then argued that Probiotec Ltd should use two systems of accounting to have its financial performance developed. The limitations of financial statements will be finally discussed in the last part of this paper. The main aim of this paper is to promote the liquidity position of the company and therefore enhance the company’s financial performance through applying appropriate ratios and providing some effective recommendations accordingly. This paper also aims at maximizing the usefulness of the information derived utilizing two systems of accounting. To this end, secondary data were gathered from scholarly articles, together with a financial paper of Probiotec Ltd. The results illustrate that the company does not have an appropriate liquidity position so that it is hard for the company covering the short term liabilities through the liquid assets. Moreover, it is clear that one system of accounting cannot do the job regardless of how large or small the entity is. From this paper, a conclusion can be drawn that although Probiotec Ltd has some positive ratios which indicate the acceptable performance of the company, the liquidity ratio of the company is not reliable to the shareholders. Hence, it is advisable that the company should increase its sale, along with reducing the period of credit being taken. Further to this, the company should use some methods to decline the risk of liquidity.

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International Journal of Management, Accounting and Economics (IJMAE) is an electronic independent international scientific and academic journal aims to publish scholars’ original and high quality manuscripts and reports in all fields of business.